Oil drops on concerns that US-China trade deal may not stoke demand

CNBC

Reuters
KEY POINTS
  • Oil prices slipped on Wednesday on concerns that the pending Phase 1 trade deal between the United States and China, the world’s biggest oil users, may not boost demand.
  • Brent crude was down 19 cents, or 0.3%, at $64.30 per barrel by 0428 GMT.
  • U.S. West Texas Intermediate crude futures were down 19 cents, or 0.3%, at $58.04 a barrel.
RT: Oilfield operated by ExxonMobil in Iraq 200109 - 106328286
A policeman is seen at West Qurna-1 oil field, which is operated by ExxonMobil, in Basra, Iraq January 9, 2020.
Essam al-Sudani | Reuters

Oil prices slipped on Wednesday on concerns that the pending Phase 1 trade deal between the United States and China, the world’s biggest oil users, may not boost demand as the U.S. intends to keep tariffs on Chinese goods until a second phase.

U.S. Treasury Secretary Steven Mnuchin said late on Tuesday that tariffs on Chinese goods will remain in place until the completion of a second phase of a U.S.-China trade agreement, even as both sides are expected to sign an interim deal later on Wednesday.

Brent crude was down 19 cents, or 0.3%, at $64.30 per barrel by 0428 GMT. U.S. West Texas Intermediate crude futures were down 19 cents, or 0.3%, at $58.04 a barrel.

“A pickup with global demand for crude may struggle as U.S.-Chinese tensions linger after some hardline stances from the Trump administration,” said Edward Moya, analyst at brokerage OANDA.

“Financial markets are disappointed that the Trump administration … signalled tariffs will remain in place until after the 2020 U.S. Presidential election, depending on whether China comes through on their promises with the phase-one agreement.”

U.S. President Donald Trump is slated to sign the Phase 1 agreement with Chinese Vice Premier Liu He at the White House on Wednesday. That agreement is expected to include provisions for China to buy up to $50 billion more in U.S. energy supplies.

Adding to worries over U.S.-China trade relations, the U.S. government is nearing publication of a rule that would vastly expand its powers to block shipments of foreign-made goods to Chinese technology giant Huawei, according to two sources.

Meanwhile, U.S. crude inventories rose by 1.1 million barrels, data from the American Petroleum Institute showed, countering expectations for a draw.

U.S. oil production is expected to rise to a record of 13.30 million barrels per day in 2020, mainly driven by higher output in the Permian region of Texas and New Mexico, the U.S. Energy Information Administration (EIA) said.